LEARN · SALARY PACKAGING
Salary Packaging — novated leases, super, and the FBT trap
Salary packaging means redirecting part of your pre-tax salary toward a benefit instead of taking it as cash. The benefit is then funded with pre-tax dollars, which can save tax — but it can also trigger Fringe Benefits Tax for the employer, change your reportable fringe benefits, and ripple into HECS, FTB, Medicare levy surcharge and child support. The maths only works if the whole picture is modelled.
1. Common items
· Novated leases on a car (most common in private-sector roles)
· Additional super contributions (concessional cap aware)
· Work-related items — laptops, tools, mobile phones (FBT-exempt if used primarily for work)
· Otherwise-deductible expenses — the benefit reduces FBT to zero in many cases
· Meal entertainment and venue hire (capped, employer-discretion)
· Health insurance (FBT-able for most employers)
2. How the maths works
Pre-tax salary is reduced by the amount of the benefit. The benefit is funded directly. The employee's reportable fringe benefits amount goes up — which doesn't change income tax but does affect Medicare levy surcharge, HECS thresholds and FTB. The actual saving depends on your marginal rate vs the FBT rate (47% on benefits other than the otherwise-deductible and exempt categories).
3. Novated lease specifics
Most popular salary-package item in Melton. The lease company runs the car finance, registration, fuel, servicing and insurance through the package. Employer pays the lease via salary sacrifice. Method: usually statutory formula (20% of car cost annually) for FBT, though the EV exemption removes FBT entirely for eligible electric vehicles below the luxury car threshold — an enormous saving worth modelling against an outright purchase.
4. When it's a tax saving — and when it isn't
Generally a saving when the benefit is FBT-exempt or otherwise-deductible (laptops, tools, work-related phone). Generally a wash or worse when the benefit is fully FBT-able and you're on a marginal rate at or below 47%. Always model the after-tax dollar figure both ways before signing a salary-packaging agreement.
5. Common mistakes
· Signing a novated lease without modelling it against an outright purchase or chattel-mortgage equivalent
· Forgetting that reportable fringe benefits push up Medicare levy surcharge (if income over the threshold) and reduce certain offsets
· Packaging items that are already deductible — there's no advantage if you'd claim 100% anyway
· Not adjusting other tax-planning numbers (super contributions, HECS payments) when reportable fringe benefits jump
6. When to talk to us
Before signing any salary-packaging agreement — even free novated-lease modelling from the provider only shows the saving, not the side effects. We model the full year-end position including HECS, Medicare levy surcharge and FTB so you know exactly what's left in your pocket.
LAST REVIEWED · 2026-05 · BY ZAKI CHOUDHRY · TPB 26321143
